04/03/2008 11:00PM

Magna plan faces opposition

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Two major shareholders of MI Developments with the power to block a proposal to sell the company's equity in the troubled racetrack company Magna Entertainment Corp. have indicated that they are opposed to the plan.

Greenlight Capital Inc., which holds 10.8 percent of MI Development's class A subordinate shares, said in a release it issued on Wednesday that it was "vehemently opposed" to the proposal and called it a "value-destroying transaction."

Hotchkis and Wiley Capital Management, which holds 11.9 percent of the company's class A stock, is also opposed, according to the Toronto Globe and Mail. Hotchkis and Wiley did not respond to inquiries on Friday.

Under the terms of the proposal to divest itself of Magna Entertainment Corp., any shareholder owning more than 10 percent of the class A stock of MI Developments can block the deal by exercising "dissent rights," according to a term sheet of the proposal provided by MI Developments.

It is not clear if either of the two companies will exercise those rights prior to a scheduled vote on the proposal on May 30. A spokeswoman for Greenlight reiterated on Thursday that the company is opposed to the deal but would not comment when asked whether the group intended to exercise the dissent rights.

John Simonetti, the chief executive of MI Developments, did not return a phone call on Friday. A spokesman said that Simonetti was the only official authorized to discuss the proposal.

The proposal would allow MI Developments to sell its 62 million shares in Magna Entertainment for $25 million to a group identified by Magna's founder and chairman, Frank Stronach. In addition, the deal would transfer $150 million in cash from MI Developments and $247 million in debt that Magna owes MI Developments to a new company. Magna Entertainment would own 51 percent of the new company, and MI Developments would own 49 percent, according to the term sheet.

Greenlight Capital characterized the deal as an "outrageous payoff" to Stronach in a release on Wednesday. The company has put pressure on MI Developments to sever its ties to Magna Entertainment in the past.

Magna Entertainment Corp. has lost $500 million over the past five years and is struggling to reduce its $600 million debt load. Of the $247 million in debt to MI Developments, $180 million comes due this year.